China's wealthy move money out as economy slips

HONG KONG - As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less.

To get around the country's cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China.

A group of 100 people can move $5 million overseas.

The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China's economic prospects and shaking global markets.

Over the last year, companies and individuals have moved nearly $1 trillion from China.

Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas and paying off debts owed in dollars.

Others, like Smurfing, are more dubious and in certain cases, outright illegal.

If the government cannot keep citizens from rushing to the financial exits, China's outlook could darken.

The swell of outflows is a destabilizing force in China's slowing economy, threatening to undermine confidence and hurt a banking system that is struggling to deal with a decadelong lending binge.

The capital flight is already putting significant pressure on the country's currency, the renminbi. The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets.

China is also trying to put the brakes on outflows by tightening its grip on the country's links to the global financial system. The government, for example, just started to clamp down on people's use of bank cards to buy overseas life-insurance policies.

"Companies don't want renminbi and individuals don't want renminbi," said Shaun Rein, the founder of the China Market Research Group. "The renminbi was a sure bet for a long time, but now that it's not, a lot of people want to get out."